Lending Association

Wall Street bets on Chinese rebound

Over the Christmas-New Year break, several analysts and banks displayed eagerness to return to or boost small investments in the Chinese stock markets.

The new bulls pointed to its depressed market values compared to other markets in Asia (and the chance for rebound profits).

The renewed interest in China came after foreigners invested a record amount in Chinese shares last year, but by year’s end, more than 75% of foreign funds had left the country.

So it was adventurous analysts or two who regained their confidence in China over the break, led by big Wall Street banks who reckoned there will be a rebound in 2024.

“Some of Wall Street’s biggest banks are betting on a substantial rebound for China’s stock market in 2024 after last year’s brutal rout,” the Financial Times reported late last week.

That optimism looks a little misplaced with Chinese markets making a weak start to the year. Still, on Monday, the revival story took a bigger hit when the blue-chip CSI 300 index (which covers the top stocks on the Shanghai and Shenzhen markets) hit the lowest level in five years.

It lost 1.3% on Monday and is already down 4% for 2024, trading at levels not seen since February 2019.

Bloomberg reported there was more heavy selling by foreigners, while the ending of a government ban on short selling by mutual funds (who are big investors in Chinese shares) had no impact.

That means the blue-chip index is now down more than 42% since its peak in 2021.

Investors do not like the health of the Chinese economy, which will be tested again this week by December inflation (deflation, really) data and the trade figures for last month and 2023.

The surprise bankruptcy of shadow bank Zhongzhi Enterprise Group last Friday reminded investors of the precarious state of China’s financial system, especially property investors, where shadow banks have a lot of their reported $US3 trillion in debt invested and not performing. Chinese local governments are also heavily indebted as well.

Monday also saw the Hong Kong market weaker, with the Hang Seng China Enterprises Index down more than 2% to close at the lowest level since November 2022, as tech stocks led the losses. The Hang Seng Index itself lost nearly 1.9% on Monday.